What Should You Know About Dollar Tree (DLTR)?

Dollar Tree shares fell by -1.7% during the day's afternoon session, and are now trading at a price of $104.59. Is it time to buy the dip? To better answer that question, it's essential to check if the market is valuing the company's shares fairly in terms of its earnings and equity levels.

Dollar Tree's Valuation Is in Line With Its Sector Averages:

Dollar Tree, Inc. operates discount variety retail stores. The company belongs to the Consumer Discretionary sector, which has an average price to earnings (P/E) ratio of 22.33 and an average price to book (P/B) ratio of 3.12. In contrast, Dollar Tree has a trailing 12 month P/E ratio of 19.1 and a P/B ratio of 2.55.

When we divideDollar Tree's P/E ratio by its expected five-year EPS growth rate, we obtain a PEG ratio of 0.91, which indicates that the market is undervaluing the company's projected growth (a PEG ratio of 1 indicates a fairly valued company). Your analysis of the stock shouldn't end here. Rather, a good PEG ratio should alert you that it may be worthwhile to take a closer look at the stock.

Healthy Debt Levels but a Declining EPS Growth Trend:

2018-03-16 2019-03-27 2020-03-20 2021-03-16 2022-03-15 2023-03-10
Revenue (MM) $22,246 $22,823 $23,611 $25,509 $26,321 $28,332
Gross Margins 32.0% 30.0% 30.0% 31.0% 28.0% 32.0%
Operating Margins 9% 8% 7% 7% 7% 8%
Net Margins 8.0% -7.0% 4.0% 5.0% 5.0% 6.0%
Net Income (MM) $1,714 -$1,591 $827 $1,342 $1,328 $1,615
Net Interest Expense (MM) -$302 -$370 -$162 -$147 -$179 -$125
Depreciation & Amort. (MM) -$611 -$621 -$645 -$687 -$716 -$768
Earnings Per Share $7.21 -$6.66 $3.47 $5.65 $5.79 $7.04
EPS Growth n/a -192.37% 152.1% 62.82% 2.48% 21.59%
Diluted Shares (MM) 238 239 238 237 230 230
Free Cash Flow (MM) $2,142 $2,583 $2,890 $3,606 $2,451 $2,869
Capital Expenditures (MM) -$632 -$817 -$1,020 -$890 -$1,020 -$1,254
Net Current Assets (MM) -$4,574 -$3,565 -$9,050 -$8,360 -$8,394 -$7,904
Long Term Debt (MM) $4,862 $4,344 $3,522 $3,226 $3,417 $3,422

Dollar Tree has strong margins with a stable trend, healthy debt levels, and wider gross margins than its peer group. However, the firm has declining EPS growth. Finally, we note that Dollar Tree has weak revenue growth and a flat capital expenditure trend, irregular cash flows, and just enough current assets to cover current liabilities.

The above analysis is intended for educational purposes only and was performed on the basis of publicly available data. It is not to be construed as a recommendation to buy or sell any security. Any buy, sell, or other recommendations mentioned in the article are direct quotations of consensus recommendations from the analysts covering the stock, and do not represent the opinions of Market Inference or its writers. Past performance, accounting data, and inferences about market position and corporate valuation are not reliable indicators of future price movements. Market Inference does not provide financial advice. Investors should conduct their own review and analysis of any company of interest before making an investment decision.